Stock splits | What to know about your investment | Fidelity (2024)

A stock split doesn't change the value of your investment.

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Stock splits | What to know about your investment | Fidelity (1)

If you own the stock of a company that executes a stock split, the details of your position change, but the total value of your position does not. Here are the key things to know about stock splits.

What is a stock split?

A stock split divides each share into several shares. The most common type of a stock split is a forward stock split. For example, a common stock split ratio is a forward 2-1 split (i.e., 2 for 1), where a stockholder would receive 2 shares for every 1 share owned. This results in an increase in the total number of shares outstanding for the company, though no change in a shareholder's proportional ownership. Normally, a stock split will reduce the price per share of each share in proportion to the increase in shares.

Using this example, a 2-1 split for a stock trading at $200 would halve the price to $100 and double the number of total shares outstanding.

Why might a company decide to do a stock split?

Management of a company might decide to do a forward stock split if they believe the price is relatively "high" or that it is trading outside of an "optimal" range. This decision is made by management based on their subjective views of the historical trading range of the stock and other factors.

A company may initiate a reverse stock split if they believe the stock price is relatively "low" or to avoid being delisted (some exchanges have minimum share price requirements). In a 1-2 reverse stock split for a stock trading at $2, for example, you would receive 1 share for every 2 shares you owned after the split and the stock price would double to $4. Again, the total value of your investment would not change due to the stock split.

How does a stock split impact your holdings/portfolio?

The critical thing to understand about a stock split (including a reverse stock split) is that the proportional ownership of your position is unaffected by the split, and it is the market that will determine the impact on the total value of the position. While the number of shares owned changes after a stock split, the split itself does not change your investment value.

For example, suppose you own 100 shares of a company trading at $200 per share, for a total value of $20,000. All else equal, if the stock split 2-1, you would then own 200 shares of the company at $100 per share after the split for the same total value of $20,000.

Investing implications

Some investors believe that a forward stock split is a signal by management to investors that the company believes the stock value is attractive. Moreover, the stock may become more accessible to additional investors at a relatively lower price.

It can be the case that a company's stock price may rise immediately after a stock split announcement (due to this management-signaling effect). There is some evidence that companies who split their stock outperform the broad market over the near term.1

Of course, this does not mean a stock will rise after a stock split announcement or when it goes into effect. Remember, a stock split in and of itself does not impact your holdings' value. Without strong earnings, dividend growth, or some other positive news for the company following the stock split, any gains made by the stock following the stock split announcement would likely fall back to (or below) the presplit announcement.

A company will typically announce a stock split several weeks before the split actually occurs. Consequently, there is a window between the announcement and the stock split. You would not want to base your decision to buy (or sell) a stock based solely on a stock split. A stock split does not change the value of a stock because it does not change the fundamentals or growth prospects of the underlying company. If you have determined that you want to buy the stock of a company that has announced a split, your decision when to buy can be based on your research, objectives, risk constraints, and any other considerations relative to your strategy.

Other management decisions regarding its stock—such as changes to a dividend payment or a new stock offering—have implications for the company's fundamentals, and thus, your investment value. But a stock split does not.

Stock splits | What to know about your investment | Fidelity (2024)


Stock splits | What to know about your investment | Fidelity? ›

Stock splits: What you need to know. A stock split doesn't change the value of your investment. If you own the stock of a company that executes a stock split, the details of your position change, but the total value of your position does not.

What is a good investment split? ›

First, set aside enough money in cash and income investments to handle emergencies and near-term goals. Next, use the following rule of thumb: Subtract your age from 100 and put the resulting percentage in stocks; the rest in bonds. In other words, if you're 20 years old, put 80% of your assets in stocks; 20% in bonds.

Is it good for investors when a stock splits? ›

It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.

When you own 100 shares of a $100 stock that splits two for one you will now own? ›

Let's assume that you currently own 100 shares in a company with a share price of $100. If the company declares a two-for-one stock split, you would now own 200 shares at $50 per share post-split.

What is a 3 2 stock split? ›

Or, in a 3-for-2 split, the company would give you three shares with a market-adjusted worth of about $66.67 in exchange for two existing $100 shares, leaving you with 15 shares. While you now have more shares than you started with, the total value of those shares is the same as it was before the split: $1,000.

What is the 70% rule investing? ›

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

What is the 2% rule in stocks? ›

What Is the 2% Rule? The 2% rule is an investing strategy where an investor risks no more than 2% of their available capital on any single trade. To implement the 2% rule, the investor first must calculate what 2% of their available trading capital is: this is referred to as the capital at risk (CaR).

Is there a downside to stock splits? ›

Disadvantages of a Stock Split

A company cannot rely on a stock split to increase its value or market cap. A stock split divides the existing shares, thus keeping the market cap the same as before. Not to forget, a company must invest some amount to conduct a stock split.

Do stocks usually go up after a split? ›

Splitting the stock brings the share price down to a more attractive level. The actual value of the company doesn't change but the lower stock price may affect the way the stock is perceived and this can entice new investors.

Is it better to buy before or after a stock split? ›

Does it matter to buy before or after a stock split? If you buy a stock before it splits, you'll pay more per share than what it'll cost after it splits. If you're looking to buy into a stock at a cheaper price, you may want to wait until after the stock split.

How do you profit from stock splits? ›

A stock split doesn't add any value to a stock. Instead, it takes one share of a stock and splits it into two shares, reducing its value by half. Current shareholders will hold twice the shares at half the value for each, but the total value doesn't change.

Which stock is splitting in 2024? ›

2024 Stock Splits
DateSymbolCompany Name
Apr 24, 2024CDTXCidara Therapeutics Inc
Apr 23, 2024ZAPPZapp Electric Vehicles Group Ltd.
Apr 23, 2024PIRSPieris Pharmaceuticals Inc
Apr 23, 2024MYSZMy Size Inc
87 more rows

Did Walmart stock split? ›

For the first time in over 20 years, retail giant Walmart (NYSE: WMT) executed a stock split with shares trading on a post-split basis as of Feb. 26. The company's decision to do a 3-for-1 split was motivated in part by a desire to ensure shares remained affordable for employees, also known as associates.

What does a 20 for 1 stock split mean? ›

That means if you had 10 shares of Google on Monday, you will own 200 shares once the split occurs. If you are not familiar with stock splits, you may get excited to think you have just increased your value in Google by 20 times but, the company will reduce its stock price by 20 times.

Should I sell before a stock split? ›

That said, many stocks have shown strong performance after a split. In other words, selling your shares of a stock prior to a split isn't always the best decision – unless, of course, you're not well-positioned to continue holding the stock.

What is a 4 for 1 stock split? ›

A 4-for-1 stock split means that a stockholder will have four (4) times as many shares as they had before the stock split, with each share valued at approximately one fourth (1/4th) of the pre-split market price.

What is a 70 30 split in money? ›

A 70/30 commission split indicates that the total commission earned will be divided between two parties in a ratio of 70% to one party and 30% to the other. This percentage split is commonly used in various business and sales agreements.

What does a 20 to 1 stock split do? ›

When a company splits its stock, that means it divides each existing share into multiple new shares. In a 20-1 stock split, every share of the company's stock will be split into 20 new shares, each of which would be worth one twentieth of the original share value.

Is a 3 to 1 stock split good or bad? ›

One side says a stock split is a good buying indicator, signaling that the company's share price is increasing and doing well. This may be true but a stock split simply has no effect on the fundamental value of the stock and poses no real advantage to investors.

Is a 20 1 stock split good? ›

When a company divides each existing share into 20 new shares, that also means that each share is now worth one twentieth of the original value. The market value of the company, however, does not change. In short, Amazon stock is going to become a lot more affordable to the everyday investor who wants in.

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